NZ Private Equity and Venture Capital Monitor 1H 2008

Ernst Young and the NZVCA just released the NZ Private Equity and Venture Capital Monitor covering January to June of 2008.

They report that “investment in the venture capital and the mid-market private equity segments was slightly below historical average levels, both deal volumes and average deal size ratios indicate that, market conditions are challenging but the sector remains fundamentally sound.”

They also note that “the venture capital market is reaching a significant point where a number of managers seeded by the New Zealand Venture Investment Fund in 2002-03 are close to fully invested and are now moving into the divestment phase.”  They point out that this divestment phase is taking longer than anyone would have liked, blaming current market conditions.  The bad news for angels is that follow-on capital could be tight until the VIF-supported VCs can unload sufficient portfolio to free up some cash.

Franceska Banga provides the following interesting quote: “Current market conditions make for ‘great vintage years’ for those that recognise the stage of the investment cycle that we’re in.  As business owners adjust their valuation expectations, the opportunities to invest will become apparent.”

Half of the survey respondents were pessimistic about the outlook for the next 6 months, with the other half split between optimistic and neutral; things are looking better for the next 18 months with 59% being optimistic, 33% neutral and only 8% pessimistic.

In total, NZD 22.9m of VC was invested in 1H 2008.